Why Did RBNZ News Boost the Pound to Australian Dollar (GBP/AUD) Exchange Rate Last Night?

Update 16:40 BST 07/08/2019:

After a surge in reaction to the Reserve Bank of New Zealand’s (RBNZ) deep interest rate cut this morning, the Pound to Australian Dollar (GBP/AUD) exchange rate’s movement cooled this afternoon.

GBP/AUD has slipped back from its best interbank levels in a month, and trended closer to the interbank level of 1.80 at the time of writing.

While the Australian Dollar (AUD) was still weaker this week amid trade jitters and RBNZ news, comments from US officials attempting to downplay the chances of a long US-China trade war helped the ‘Aussie’ to recover a little.

Original post:

Pound to Australian Dollar Exchange Rate Surges amid Safe Haven Rally

After modestly strong movement in the first half of the week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate saw a stronger jump today in reaction to a shockingly deep interest rate cut from the Reserve Bank of New Zealand (RBNZ).

Last week saw GBP/AUD briefly dip to a 2019 low of 1.75, but the pair has since seen a strong rebound of recovery.

Since opening this week at the interbank level of 1.78, GBP/AUD has trended higher and after this morning’s surge was trending near the interbank level of 1.81. This was the best GBP/AUD level in over a month, since late-June.

Speculation that Australia’s monetary policy outlook could be more dovish than expected rose following the RBNZ news today. Combined with fresh US-China trade fears, the Australian Dollar outlook is weaker.

Pound (GBP) Exchange Rates Driven by Rivals as Brexit Uncertainty Persists

Investors bought the Pound (GBP) versus the unappealing Australian Dollar (AUD) today, but this was largely due to Australian Dollar weakness rather than any fresh demand for the Pound.

Since Britain’s new Boris Johnson government came into power at the end of July, the Pound has been weakening on fears that a worst-case scenario no-deal Brexit is becoming more likely.

These factors drove the Pound to near its worst levels.

While the British currency has steadied since yesterday, fears that the UK and EU will not agree on any Brexit renegotiation continued to weigh on the British currency and limit its potential for recovery.

Australian Dollar (AUD) Plummets as Reserve Bank of New Zealand (RBNZ) News Shocks Markets

While the Reserve Bank of Australia (RBA) was a little less dovish than feared during its own policy decision yesterday, the Australian Dollar (AUD) has still plummeted on central bank news this week.

The Reserve Bank of New Zealand (RBNZ) held its August monetary policy during today’s Asian session, and shocked investors with an unexpected 50 basis point interest rate cut.

The RBNZ was widely expected to cut New Zealand’s interest rates from 1.5% to 1.25%, but instead chopped them to 1.0%. On top of this, the bank even indicated that sub-zero interest rates were possible in the outlook.

As New Zealand and Australia’s economies have a close relationship, the far more dovish than expected tone from the RBNZ shocked Australian Dollar investors as well. This caused significant GBP/AUD gains this morning.

On top of the shocking RBNZ news, Australian Dollar investors were also concerned by a surprisingly deep contraction in Australian construction today. Australia’s July construction PMI unexpectedly fell from 43.0 to a concerning contraction of 39.1.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Investors Await RBA Comments

The Reserve Bank of Australia (RBA) was about as dovish as expected on Tuesday, but the Reserve Bank of New Zealand’s (RBNZ) shockingly dovish decision today has influenced the Australian Dollar outlook.

Concerns that much lower interest rates in New Zealand could hit Australia’s economy or influence the RBA are likely to keep pressure on the Australian Dollar (AUD) until the end of the week, when RBA Governor Philip Lowe will hold a speech.

Investors will be highly anxious to see if Lowe’s tone on monetary policy has been influenced at all by the RBNZ news.

If Lowe indicates that the RBA will become more dovish too as a result, the Australian Dollar will likely be in for more weakness, which will make it easier for the Pound to Australian Dollar (GBP/AUD) exchange rate to sustain gains this week.

The Pound (GBP), on the other hand, is unlikely to have much solid support itself. Investors would buy the Pound if there were any optimistic Brexit developments, but otherwise investors will await Friday’s UK growth stats.

US-China trade tensions remain a concern for investors of trade-correlated currencies like the Australian Dollar as well, so any developments here could also influence the Pound to Australian Dollar (GBP/AUD) exchange rate.

Josh Jeffery

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